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Volvo stock hits record low as Geely trims stake

Volvo (VOLCAR-B.ST) shares plunged to a record low after its Chinese parent company, Geely Holding Group, sold over 3% of its stake in the Swedish automaker. Geely notes the share sale is aimed at boosting Volvo's stock liquidity. Despite trimming its position, Geely retains a 78% ownership interest in Volvo.

Yahoo Finance's Seana Smith, Myles Udland and Brad Smith break down the details of this morning mover, providing insights into the effects of EV's on automakers.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Well, let's take a look at another mover this morning. Swedish automaker, Volvo, tumbling to a record low. Now, this comes after its majority shareholder Chinese-owned Geely Holding sold just over 3% of its stake in the company. Geely saying that the move will improve trading liquidity for investors and allows a wider base of share and still leaves Geely with a 78% holding within Volvo.

Now, this took the street by a bit of a surprise here just given the depressed levels that Volvo has been trading at the timing of this sale. Certainly interesting. But they're doing what they can to raise some liquidity, a better positioned Volvo that they see at least for the future. I'm a bit surprised that this stock has not performed a little bit better and certainly at least over the last several months. Solk, when you talk about the fact that it's not exactly--

MYLES UDLAND: I knew you were going to go there.

SEANA SMITH: It shouldn't be an underperformer. Why?

MYLES UDLAND: Well, every single one of our friends from high school has a Volvo now. So that's it.

[CHUCKLES]

SEANA SMITH: It is-- it is a family car. It is.

BRAD SMITH: Well, isn't that what it's-- so Tesla, their whole thing is how do we tout safer than a Volvo, faster than a Porsche--

SEANA SMITH: Exactly

BRAD SMITH: --was their entire thing. So yeah, the safety standards, they-- they run higher over there.

MYLES UDLAND: I think ultimately for any automaker right now, inclusive of Tesla, there's a challenge around what you are-- what the story that you've been telling yourselves and investors on what the world's going to look like in 2030, you know. Volvo is among the dozens of international car makers talking about we're not going to make internal, you know-- we're not going to make combustion engines by the end of this decade. Well, we're six weeks away from 2024. So in six years, we're not going to make the cars that are still a majority of our sales.

And look the mechanics of this-- it doesn't matter what the company is. When your majority shareholder comes out and says, yeah, we're going to sell 100 million shares, even if everyone says, it's fine, and even if it is indeed fine, you know-- Volvo, for all-- well, they're not going to buy it back. But in theory, they could come. They could buy back the stake themselves. It's just not the kind of thing that investors are going to be super excited about. There's a mechanical math thing around, oh, there's more liquidity therefore the stocks that are currently trading-- the shares that are currently outstanding are thus worthless.

SEANA SMITH: So then I think that also then leads to is this a bit of an overreaction maybe on the street part. Obviously, just given the fact--

MYLES UDLAND: Obviously, people will tell you that.

SEANA SMITH: Yeah. That's what I would think. That was my argument.

MYLES UDLAND: But I do think-- I do think, though, that for automakers right now, it's a very challenging time to articulate your strategy. Because the strategy that most automakers have articulated is that very simple like, we're transitioning-- we're going to spend all this money. Don't worry. In the future, everyone's going to have an electric vehicle. That's the reason why we're spending all this capital now. It's going to be fine.

And it's just not totally clear. When we see the signs from the GMs and the Ford on their read on the US market around the demand for their next Gen EVs, it's just not clear that the timeline that has been agreed to-- which again, generally is 2030-- to me, it's not clear that's going to come through.

BRAD SMITH: At a time where we know that there is an amazing and remarkable pricing war that's ensued in the EV landscape and Volvo, who just posted, its 2024 kind of prices MSRP down the line for all of its models, the average is coming in at about $57,000 sticker. So we'll see what negotiations on lots look like. And you know, of course in the dealer mechanisms how much that can vary.

But at the end of the day, it's still going to be a larger question of where those prices might still need to come down even if you are still selling an internal combustion engine, where people are going to say, OK, now I weigh the options of do I feel comfortable getting an EV and ensuring that I can have the chargeability, or do I just stay with this ice Volvo that I know is going to have a high safety standard because everybody else in my neighborhood has it and at the end of the day feel-- feel comfortable, I guess.

SEANA SMITH: Yeah. And I think it also just ties to the fact that profitability off of these EV vehicles, right? When it comes to at least their EV SUV, the EX30, there's questions about what exactly those margins are going to look like.

BRAD SMITH: It's just about getting them into the ecosystem at this point.

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